Many retailers are facing a cruel summer

updated 5:49 p.m. ET June 29, 2009

NEW YORK - As Americans get ready to celebrate July Fourth, many merchants already have dismissed summer as a washout.

Macy's flagship store has racks of summer tops, swimwear and dresses marked down as much as 50 percent, while luxury retailer Bergdorf Goodman is slashing prices on designer goods by as much as 70 percent. Meanwhile, piles of clothing as well as barbecue grills, tents and gardening tools are bypassing stores and heading straight to liquidators as merchants try to conserve their cash.

Such deep discounting so early in the season is great news for bargain hunters, but it's a worrisome sign that shows a further weakening in retail sales since the end of May.

Consumers' confidence in the economy, which had surged in April and May, is projected to be virtually unchanged for June when The Conference Board releases figures Tuesday. And major retailers will release June sales results next week.

While unusually rainy weather across a broad swath of the country has dampened business, some analysts wonder whether shoppers are waking up to the harsh reality that the economy won't be getting any better soon. Consumer spending makes up 70 percent of economic activity.

That doesn't bode well for merchants, which need to get rid of summer inventory quickly to make room for fall goods that start to arrive next month.

BMO Capital Markets analyst John Morris estimated that the volume and size of discounts for mall-based apparel retailers he tracks is 10 percent higher than last June even though inventory is down 20 percent.

"It's the economy, not the weather," said Ahmed Youssef, a 28-year-old junior engineer from Jersey City, explaining why he's stuck to only necessities like groceries at Wal-Mart and computer accessories such as a $80 hard drive at Staples.

Pam MacWilliams, a tourist from Oshkosh, Wis., who on a recent Thursday was planning to scour for bargains at H&M's midtown Manhattan location with her two girls, said she's becoming less optimistic about a quick economic recovery.

"I thought that the economy would turn faster," said MacWilliams. "I had high expectations. Now, I want to save more."

U.S. employers are still cutting jobs — although at a slower rate — and home prices are still falling. Americans are seeing a three-month stock market rally stall.

Consumers' confidence in the economy has been rebounding since February, fueled in part by the stock market rise. But that improved mood hadn't translated into much relief for merchants because confidence levels are still well below the 100 reading that's considered healthy.

The concern is that shoppers' mood could actually level off in coming months. The Conference Board on Tuesday is slated to release confidence figures for June that economists estimate at 55, which would be essentially even with May's 54.9.

Friday's government economic reports weren't comforting to merchants, showing that households used most of their government stimulus payments to boost savings to the highest level in more than 15 years in May, instead of splurging at the mall.

"There was a lot of hope with the surge in confidence," said Dennis Jacobe, Gallup's chief economist. He added that consumers were convinced that the second half would be better but he noted, "you can live on that hope for only so long."

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